Term
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Definition
Assets that are used relatively quickly (within a single accounting period)
Example: Office Supplies |
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Term
| Long-term operational assets |
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Definition
Assets that are used for extended periods of time (two or more accounting periods)
Examples: equipment and buildings. |
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Term
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Definition
Assets that have a physical presence; the can be seen and touched.
Examples: equipment, machinery, natural resources, and land. |
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Term
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Definition
Assets that have no physical form. Although they may be represented by physical document.
Examples: Facts, rights, and privileges.
Patents because of the privilege. |
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Term
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Definition
term used to recognize the expense for property, plant, and equipment.
wear and tear. |
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Term
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Definition
Used to recognize expense for natural resources.
Example: It may take decades to extract all of the diamonds from a diamond mine. |
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Term
| indetifiable useful lives |
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Definition
Patents and copyrights.
Assets may become obsolete or may reach the end of their legal lives. |
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Term
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Definition
| Recognizing an expense for intangible assets which identifiable useful lives. |
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Term
| Sheridan Construction Company purchased a new bulldozer that had a $ 260,000 list price. The seller agreed to allow a 4 percent cash discount in exchange for immediate payment. The bulldozer was delivered FOB shipping point at a cost of $ 1,200. Sheridan hired a new employee to operate the dozer for an annual salary of $ 36,000. The employee was trained to operate the dozer for a one- time training fee of $ 800. The cost of the company’s theft insurance policy increased by $ 300 per year as a result of adding the dozer to the policy. The dozer had a five- year useful life and an expected salvage value of $ 26,000. Determine the asset’s cost. |
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Definition
Answer:
List price $ 260,000
Less: Cash discount ($ 260,000 x 0.04)= (10,400)
Shipping cost 1,200
Training cost 800
_______________________________________
Total asset cost ( amount capitalized)
$ 251,600 |
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Term
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Definition
1. Acquiring a group of assets in a single transaction.
2. The total price of a basket purchase must be allocated among the assets acquired.
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Term
| The appraisal indicates that the land is worth 25 percent ($ 90,000 4 $ 360,000) of the total value and the building is worth 75 percent ($ 270,000 4 $ 360,000). Using these percentages, the actual purchase price is allocated as follows. |
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Definition
Building 0.75 * $ 240,000= $ 180,000
+
Land 0.25 * $ 240,000 = $60,000
_________________________________
Total $ 240,000 |
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Term
Operational assets involve
(4 things) |
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Definition
The life cycle of an operational asset involves:
(1) acquiring the funds to buy the asset
(2) purchasing the asset
(3) using the asset, and
(4) retiring (disposing of) the asset. |
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Term
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Definition
| The amount of an asset’s cost that is allocated to expense during an accounting period |
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Term
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Definition
| The expected market value of a fully depreciated asset. |
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Term
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Definition
The total amount of depreciation a company recognizes for an asset.
Original cost - its salvage value |
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Term
| 3 alternative methods for recognizing depreciation expense |
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Definition
1) straight line
( 2) double declining balance
( 3) units of production |
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Term
Calculating Depreciation
(Straight line method) |
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Definition
Example: You buy a new computer for your business costing approximately $5,000. You expect a salvage value of $200 selling parts when you dispose of it. Accounting rules allow a maximum useful life of five years for computers. In the past, your business has upgraded its hardware every three years, so you think this is a more realistic estimate of useful life, since you are apt to dispose of the computer at that time.
Using that information, you would plug it into the formula:
($5,000 purchase price - $200 approximate salvage value) ÷ 3 years estimated useful life
The answer, $1,600, is the depreciation charges your business would take annually if you were using the straight line method. |
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Term
| Double declining method of Depreciation |
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Definition
(Accelerated method)
Double Declining Balance Depreciation Method Formula
Depreciation Base * (2 * 100% / Useful Life of Asset in Years) |
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Term
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Definition
Straight Line Depreciation Method
The simplest and most commonly used depreciation method, straight line depreciation is calculated by taking the purchase or acquisition price of an asset subtracted by the salvage value divided by the total productive years the asset can be reasonably expected to benefit the company (called "useful life" in accounting jargon). |
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Term
| Straight line formula equation |
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Definition
(Asset cost- salvage value) / Useful life= Depreciation expense
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Term
1. Determine the straight- line rate. Divide one by the asset’s useful life. Since the esti-mated useful life of Dryden’s van is four years, the straight- line rate is 25 percent ( 1 / 4) per year.
2. Determine the double- declining- balance rate. Multiply the straight- line rate by 2 ( double the rate). The double- declining- balance rate for the van is 50 percent ( 25 percent * 2).
3. Determine the depreciation expense. Multiply the double- declining- balance rate by the book value of the asset at the beginning of the period ( recall that book value is historical cost minus accumulated depreciation). The following table shows the amount of depreciation expense Dryden will recognize over the van’s useful life ( 2008– 2011). |
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Definition
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| Olds Company purchased an asset that cost $ 36,000 on January 1, 2010. The asset had an expected useful life of five years and an estimated salvage value of $ 5,000. Assuming Olds uses the double- declining- balance method, determine the amount of depreciation expense and the amount of accumulated depreciation Olds would report on the 2012 financial statements. |
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Definition
see page 217 for answer
* Double declining balance rate = 2 x Straight line rate = 2 x ( 1 / 5 years) = 0.40 |
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Term
Units of Production Depreciation Formula
(see page 220) |
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Definition
Cost- Salvage value
Total estimated units of production
X
Unit of production in current year
=
Annual depreciation expense |
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Term
| On January 1, 2010, Dager Inc. purchased an asset that cost $ 18,000. It had a five- year useful life and a $ 3,000 salvage value. Dager uses straight- line depreciation. On January 1, 2012, it incurred a $ 1,200 cost related to the asset. With respect to this asset, determine the amount of expense and accumulated depreciation Dager would report in the 2012 financial statements under each of the following assumptions. 1. The $ 1,200 cost was incurred to repair damage resulting from an accident. 2. The $ 1,200 cost improved the operating capacity of the asset. The total useful life and salvage value remained unchanged. 3. The $ 1,200 cost extended the useful life of the asset by one year. The salvage value remained unchanged. |
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Definition
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